Financial Investigations - Criminal Investigation (CI)

Why Is IRS Involved in Financial Investigations?

IRS Criminal Investigation (CI) is comprised of nearly 4,200 employees. Approximately 2,800 are special agents whose investigative jurisdiction includes tax, money laundering and Bank Secrecy Act laws. While other federal agencies also have investigative jurisdiction for money laundering and some bank secrecy act violations, IRS is the only federal agency that can investigate potential criminal violations of the Internal Revenue Code. Further, CI special agents are uniquely trained to recover computer evidence, utilizing specialized equipment to recover financial data that may have been encrypted, password protected, or hidden by other electronic means.

CI’s investigative analysts and support staff focus on protecting the revenue at the ten IRS campuses, where tax returns are filed each year, as part of the fraud detection teams; develop information for referral of criminal investigations at our lead development centers, and monitor CI’s strategic plan and core mission objectives.

Compliance with the tax laws in the United States relies heavily on self-assessments of taxes owed. This is called voluntary compliance. When individuals and corporations make deliberate decisions not to comply with the law, they face the possibility of a civil audit or criminal investigation which could result in the assessment of costly tax penalties or prosecution and possible jail time. A financial analysis, or investigation, of the individual’s financial history often determines whether the omission is unintended or a willful attempt to evade payment of taxes.

What is a Financial Investigation?

Financial investigations are usually very document-intensive. Specifically, they involve records, such as bank account information, real estate files, motor vehicle records, etc., which point to the movement of money. Any record that pertains to or shows the paper trail of events involving money is important. The major goal in a financial investigation is to identify and document the movement of money. The link between where the money comes from, who gets it, when it is received and where it is stored or deposited, can provide proof of criminal activity.

Tax evasion, public corruption, health care fraud, telemarketing fraud and terrorist financing are just a few of the types of crimes that revolve around money. In these cases, a financial investigation often becomes the key to a conviction. Traditional law enforcement relies on investigative tools such as crime scene analysis, physical evidence, fingerprint identification or eyewitness accounts. The limitations of these techniques become obvious to those who are trying to prove wrongdoing in a sophisticated financial crime. With no proof, there is no conviction.

What are the Major Areas of Financial Investigations?

IRS Criminal Investigation’s focus on financial investigations falls into three interdependent categories: Legal Source Tax Crimes, Illegal Source Financial Crimes, and Narcotics-Related Financial Crimes/Counterterrorism Financing. These three areas are mutually supportive and create a well-rounded law enforcement program for IRS which addresses the growing fraud in legal industries as well as penetrates the nucleus of money laundering operations and drug trafficking/terrorist financing organizations.

Focusing on Legal Source Tax Crimes

Criminal Investigation's primary resource commitment is devoted to the development and investigation of legal source tax crimes. These investigations involve legal industries and occupations, and more specifically, legally earned income. Fraud in legal industries is often termed "white collar" crime because it involves financial violations, including tax violation, by individuals who are not involved in other criminal activity. Some of the tax violations include income tax evasion, failure to file, or filing a false tax return. The crimes often include employment tax fraud, false claims for tax refunds, abusive trust schemes, unscrupulous tax return preparers and frivolous filers/nonfilers who challenge the constitutionality of the American tax system.

Focusing on Illegal Source Financial Crimes

Illegal source financial crimes involve money obtained through illegal sources such as embezzlement, kickbacks, health care fraud or telemarketing fraud. This money is a part of the untaxed underground economy which threatens the strength of the American economy. Failure to investigate these crimes erodes public confidence in the tax system. This program encompasses all tax and tax-related violations, as well as money laundering and Bank Secrecy Act/currency violations. The crimes may include over billing of Medicare, kickbacks to public officials, activities to obtain money through telemarketing scams, securities fraud, ponzi schemes, or even illegal gaming (book-making) activities.

Focusing on Narcotics-Related and Counterterrorism Financing Crimes

The primary objective of Criminal Investigation's involvement in narcotics-related financial crimes is to reduce the profit and financial gains of the drug trafficking and money laundering organizations. In counterterrorism financing cases, the goal for IRS, along with the federal government through their joint terrorism task forces, is to cut off the funding for any further terrorist activities. We provide more about CI's participation in narcotics-related financial crimes on our Narcotics-Related Financial Crimes and Counterterrorism Financing.

Criminal Investigation's top priority is the investigation of violations of the tax law which falls under Title 26 of the U.S. Code. However, CI special agents lend their financial investigative expertise to money laundering and narcotics investigations conducted in conjunction with other law enforcement agencies at the local, state and federal levels.

Violations that are within the investigative jurisdiction of Criminal Investigation are cited in the Internal Revenue Manual (IRM) 9.1.3

In Summary

Criminal Investigation’s conviction rate is one of the highest in federal law enforcement. Not only do the courts hand down substantial prison sentences, but those convicted are often ordered to pay fines, civil taxes and penalties.

Today’s sophisticated schemes to defraud the government and the American economy demand the financial analytical ability of forensic investigators to wade through complex paper and computerized financial records. CI’s financial investigators, along with the investigative analysts, fill that demand in the federal law enforcement community. This is what they are trained to do, this is what their skills are singularly focused on, and this is why IRS CI is involved in financial investigations.